Are you considering buying or selling a home? If so, it’s important to know exactly how much money you can expect to spend on closing costs.
This article will provide a complete list of closing costs for both home buyers and sellers.
So, whether you’re about to embark on your first home buying experience or are getting ready to sell your current home, make sure to read this guide!
What Are Closing Costs?
What are closing costs and how much will I pay? Closing costs are fees associated with home buying and selling a home. They can include a variety of different expenses, such as lender fees, escrow fees, title insurance premiums, and more. In most cases, home buyers and sellers will each pay their own closing costs.
However, there are some instances where the seller may be required to cover part or all of the buyer’s closing costs.
How Much Are Closing Costs?
The amount of money you’ll spend on closing costs will vary, depending on a variety of factors. However, in general, homebuyers can expect to pay between about two and five percent of the purchase price of the home. Sellers usually pay much less – typically around one to three percent of the sale price.
Closing costs can range from 3% to 6% of the home’s selling price. This implies that if you borrow $200,000 for a house, closing expenses will be around $6,000 – $12,000.
Closing costs are not the same as your down payment. However, the seller might agree to pay some or all of your closing costs. Keep in mind that how much power you have to negotiate this might depend on the market you’re in.
Who Pays Closing Costs?
Both the home buyer and the home seller have closing costs. However, who pays what can vary. In some cases, the seller might agree to pay all of the buyer’s closing costs. Or, the buyer and seller might agree to split the costs evenly.
In other cases, each party will simply pay their own closing costs. This is most common in normal real estate markets where there is not a lot of negotiating power. Who pays what will also be written into your contract. So make sure you read over it carefully before signing!
An Example Of A Seller’s Concessions In Action
Let’s say you’re buying a home for $200,000. Your closing costs will be about $6,000. But the seller offers to pay $4,000 of your closing costs as a concession. This means that your total closing cost out-of-pocket will only be $2,000.
Seller concessions are not always offered, but they are something to keep in mind when negotiating with the seller!
How Much Are Closing Costs For A Buyer?
The average closing costs for a buyer are between about two and five percent of the purchase price of the home. This means that if you’re buying a $300,000 house, your closing costs could range from $6,000 to $15,000.
Of course, this does not include your down payment. Your down payment will be separate from your closing costs and is usually due at the time of closing.
Full List Of Mortgage Closing Costs
These are fees charged by the lender or broker to underwrite, process, and close your loan. They include:
- Loan Origination Fee or Broker Fee: This is the mortgage lender’s fee or broker’s fee to put together the loan. This is where your lender makes a profit.
- Discount Fee: Mortgage points, also called discount points or closing costs, are an OPTIONAL cost that you can pay to lower your mortgage interest rate.
- Processing Fee: This is the cost of getting your documents ready and putting together your loan file. This will include getting your bank statements and verifying your employment.
- Underwriting Fee: The cost for the underwriter to review and verify the information on your loan application is $300-$750.
- Administrative Fees: Miscellaneous lender charges. This may be included in the origination fee.
- Lock-in fee or Application Fee ($200-$500 or more): Many lenders do not charge application fees or fees to lock your rate. In some states, application fees are illegal. You should be able to find a lender without these fees.
- Loan-Level Price Adjustments LLPAs (0-4% of loan amount): For conventional loans, if you have a low down payment or low credit score, you may have to pay an LLP. This is usually done by increasing your interest rate, NOT through an upfront fee. However, it’s important to be aware of what an LLP is.
Third parties do not work for mortgage lenders, but they provide services that are necessary to complete the transaction. These services include the following:
- Credit Report Fee: The cost of pulling your credit reports from at least 2 of the top 3 credit bureaus is about $35. This will give you a good understanding of your credit score and what you can do to improve it.
- Appraisal Fee: If you want to know how much your home is worth, you can hire a professional appraiser. This will cost between $500 and $1,000. Almost all lenders require an appraisal before they will give you a loan. There are some exceptions, but this is most common.
- Title Search, Title Report, and Title Insurance Policy: The title search and title report make sure that no one else owns the property. The lender will require you to have a lender’s title insurance, which protects the lender in case someone makes a claim to the property after the sale goes through. You can also buy owner’s title insurance, which protects you in case of such a claim.
- Escrow Fee: The cost of a third-party escrow company’s services can range from $350 to $1,000 or more. Escrow companies help to facilitate mortgage transactions by holding and distributing funds, managing paperwork, and more.
- Flood Certification: ($20): Determines whether flood insurance is required for the property in question.
- Recording Fee: The fees your county charges to process records when a property changes hands are called recording fee($20-$250). You will also have to pay a tax, which is usually called real estate conveyance, mortgage transfer, documentary stamp, or property transfer tax.
- Survey Fee ($400+): In some cases you may need a professional survey to determine the property lines. This is not often required, but it is something to consider.
- Attorney Fee ($400+): Charged in states where a closing attorney is required. A closing attorney helps to close the sale and negotiate the contract. You can look for low-cost attorney services to save money, but be leery of using anyone for a discount in one of the biggest transactions you’ll ever have.
- HOA Dues: If you buy in a homeowners association, you will have to pay and HOA Fee, or Estoppel Fee, for a copy of the Covenants, Concessions and Restrictions (CC&Rs), a fee for the property manager to complete a condo survey for the lender, and a fee to transfer ownership records.
- Notary Fee ($100): A mobile notary will travel to your location, such as at your home, to sign the final paperwork and verify signatures on the closing documents. Some title companies will take on this fee since the pandemic. It’s good to ask if they are setting up a mobile closing who is taking on that cost.
- Document Prep Fee: The fee the escrow company charges to prepare the final loan documents for signature is $50.
There are some costs of homeownership that you have to pay upfront. The lender needs to make sure that you will be able to pay things like property taxes and homeowners insurance, so they usually collect these costs at closing and monthly.
This is done to make sure the home isn’t at risk of being taken away because of not paying these bills. The money for these costs goes into an escrow account or “impound account.” This doesn’t sound as bad as it actually is- it just means the lender has set up a place where they will pay your expenses for you. This is usually the majority of your “closing costs”.
- Property Tax Reserves: Most buyers pay 6-12 months of property taxes upfront at closing. This can increase your closing costs significantly because property taxes can cost a few hundred dollars per month.
- Homeowners insurance ($400-$1,000 or more): Most homeowners pay 6-12 months of homeowners insurance premiums upfront when they close on the house. You should compare insurance companies before you close so that you can find the lowest-cost policy for you.
- Flood insurance ($300-$1,000 or more): If your home is in a certified flood zone, you will need to have flood insurance. Standard homeowners insurance policies do not cover flooding. This insurance is paid separately.
- Prepaid interest: You will have to pay interest for the days between when you close on your home and the day your first monthly mortgage payment is due.
How Much Are Closing Costs For A Seller?
The good news for sellers is that many of these costs are paid by the buyer. The most significant cost to a seller is usually the real estate commission, which is typically split between the seller’s and buyer’s agents. Let’s breakdown the seller costs below:
Real Estate Agent Commission
Most of the time, sellers pay for both the buyer’s and seller’s real estate agent commissions. This fee can vary depending on what market you are selling in. The average commission is usually 5-6% of the total home value. The buyer’s agent and seller’s agent split this fee evenly.
Recording Fees And Transfer Taxes
When you sell your home, the local or county government may charge you fees. The seller usually pays for the transfer taxes and recording fees. The amount you have to pay depends on your state.
The transfer taxes are usually a set number of dollars for every $100,000 of the home’s appraised value.
Title insurance is generally paid for by the seller. Unlike other forms of insurance, title insurance does not require a monthly payment. As long as you own your home, you have coverage for as long as you pay your premiums. Title insurance in most situations costs between 0.5 and 1% of the total value of your mortgage.
How To Reduce Closing Costs
There are a few ways to reduce your closing costs as a buyer or seller.
As a Buyer:
- Ask the seller to pay for some of your closing costs. This could be things like the lender fees, title insurance, or prepaid interest.
- Apply for a mortgage with no lender fees. Some lenders will charge you an application fee, but there are many that do not.
- Get pre-approved for a mortgage before you start shopping for homes. This will let you know how much money you have to work with and can help you negotiate better prices on homes because the sellers will know you’re serious about buying.
- Look for a home in a lower price range. The less expensive the home, the less your closing costs will be.
- Find a seller who is motivated to sell. When a home is priced low and the sellers are motivated, they may be willing to pay some of your closing costs.
As a Seller:
- Prepare your home for sale by doing things like painting, updating appliances, and cleaning carpets. This can help you get a higher price for your home and reduce the amount of money you have to spend on closing costs.
- Hire a good real estate agent when you want to sell your home. This person will help create a lot of demand for your home because of their experience and resources. When this happens, the agent will be able to get you more money for your home than if it were sold on its own. The extra money you make will more than cover the cost of the agent’s commission.
Shop Around For Lenders
When you’re ready to buy your home, it’s important to shop around for a lender. There are many different lenders out there, and each one has their own fees. Some lenders will also offer closing cost assistance programs. These programs can help you pay for some or all of your closing costs.
Ask The Seller To Contribute
If you live in a buyer’s market, the seller might be willing to help you cover your closing costs. This is a good deal for both you and the seller.
You get to pay less at the closing table. Your seller gets a faster home sale. Make sure you understand how much your seller can contribute based on your loan type and request a concession.
If the market conditions are in your favor, you may be able to get away with asking for more concessions from the buyer. However, if the market is tilted more in the buyer’s favor, asking for too many concessions can get your offer rejected.
Frequently Asked Questions on Closing Costs
How can I estimate how much money I will need to pay to close on my house?
Average closing costs are typically between 3% and 6% of the loan balance. This means that you should factor this into your budget when house hunting. You should also ask your lender and real estate agent about your area’s property taxes and any additional fees required by the state..
When do I pay the closing costs?
When you go to your closing meeting, you will pay your closing costs. This is when your lender takes your down payment and any other money you need to pay.
Now that you know a little more about closing costs as a home buyer and home seller, it’s important to understand how they will impact your wallet.
For the buyer closing costs, the average closing cost can range from 2-5% of the purchase price of the home. For sellers, the total closing costs can range anywhere from 6-10% of the sale price in order to cover the buyer’s closing costs.
If you are ready to buy or sell a home, reach out to us. We would be happy to start the ball rolling! We have a team of agents with years of experience helping clients through every step of the buying and selling process – including understanding and negotiating closing costs.